CREDIT : Long-Term Issues Lead Pack as Bond Prices Rise

NEW YORK — The credit markets rallied again Wednesday in reaction to the relentless slide in oil prices.

Longer-maturing issues sustained most of the gains. The Treasury's bellwether 30-year bond ended the session 7/8 point higher, or about $8.75 per $1,000 face amount, after rising about $22.50 on Monday and Tuesday.

Its yield, which moves inversely to its price, slipped to 9.12% from 9.20% on Tuesday.

Analysts say the selling frenzy in the oil futures market has helped ease some concerns of higher inflation, a nemesis for investors in fixed-income securities.

Oil prices dropped below $16 a barrel Wednesday for the first time in about a year, reflecting that market's uneasiness over the failure by the 13-nation Organization of Petroleum Exporting Countries to limit production.

Fears of rising inflation had been largely responsible for the weakness in bond prices and soaring rates that highlighted much of 1987, although most economists felt they were exaggerated.

David H. Resler, chief economist for Nomura Securities Inc., predicted that oil prices would remain relatively soft for the short term, having a positive impact on the inflation outlook.

With such a forecast in mind, Resler said he was a bit baffled by the fact that Wednesday's rally was focused mainly on the longer-end of the bond market.

"With inflation lower over the next six months, that would mean interest rates between zero and six months should have been the ones that greatly declined," he said.

Prices of short-term government bonds were unchanged to 1/32 point higher, intermediate maturities were 3/32 point to 5/16 point higher and 20-year issues rose 13/16 point.

The federal funds rate, the interest on overnight loans between banks, fell sharply because of technical factors, to 4.5% from 6.75% late Tuesday.